Title insurance is protection against loss arising from problems connected to the title to your property.
Before you purchased your home, it may have gone through several ownership changes, and the land on which it stands went through many more. There may be a weak link at any point in that chain that could emerge to cause trouble. For example, someone along the way may have forged a signature in transferring title. Or there may be unpaid real estate taxes or other liens. Title insurance covers the insured party for any claims and legal fees that arise out of such problems.
For example, if the contractor you failed to pay for remodeling your kitchen places a lien on your home, you are not protected by your title policy; the lien was placed after the date of the policy. You will probably be required to get the lien removed before you can sell the property. But in the event the lien hasn’t been removed and a search has failed to uncover it, the new lender will be protected by a new policy.
To deal with these issues, a new policy with expanded coverage has been developed. It is virtually standard in California and is available in many other states, perhaps at a small price increase. It is usually referred to as the ALTA Homeowner’s Policy.
If your policy does not have such a rider and your property has appreciated sharply in value, you may be able to purchase additional coverage on the same policy by paying an incremental fee. The fee should be modest because because no new title search is involved. The coverage will only apply to title defects that existed prior to the original date of the policy. To extend the coverage to events that may have clouded the title since the original policy, you would need to take out a new policy with a new search and pay the full rate.
Insurers generally offer discounts on policies taken out within short periods after the preceding policy. In some cases, discounts are available as far out as 6 years from the date of the previous policy. Ask for it, it may not be offered if you don’t.
To complicate it further, in some states the charges for title-related services are paid to title insurance companies, which perform the functions but charge separately for them. In other states, borrowers may pay attorneys or independent companies called abstractors or escrow companies.
Of course, what matters to the borrower is the sum total of all title-related charges. These also differ from one area to another in response to a variety of factors. The 50 states have 50 different regulatory regimes, which affect charges. So do local costs, competition in local markets, and other factors. This is a largely unstudied segment of the economy that would make a nice PhD dissertation for a student in economics!
I would certainly shop in states that do not regulate title insurance rates: Alabama, District of Columbia, Georgia, Hawaii, Illinois, Indiana, Massachusetts, Oklahoma, and West Virginia.
You would be wasting your time shopping in Texas and New Mexico because these state set the prices for all carriers. Florida also sets title insurance premiums but not other title-related charges, which can vary.
In the remaining states, the situation is murky and it may or may not pay to shop. Insurance premiums are the same for all carriers in “rating bureau states”: Pennsylvania, New York, New Jersey, Ohio and Delaware. These states authorize title insurers to file for approval of a single rate schedule for all carriers through a cooperative entity. Yet in some there may be flexibility in title-related charges. More promising are “file and use” states – all those not mentioned above — which permit premiums to vary between insurers.
It is a good idea to ask an informed but disinterested local whether it pays to shop in the area where the property is located. Just keep in mind that those likely to be the best informed are also likely to have an interest in directing your business in the direction that is most advantageous to them.